President’s Day in the U.S today, so markets are likely to be less liquid than normal. Besides that, it is extremely light on macro data, so there isn’t much to get our teeth into. I mentioned recently that the S&P 500 had been stuck in a range since the end of last year, but price action in the last week has quite decisively taken us through the top to new year to date highs, and indeed at the end of last week we saw new record highs posted. A quite remarkable performance all things considered, particularly as the technicals underpinning stocks look increasingly precarious at the moment. Since the crisis of 2007 – 08, earnings growth has tended to exceed revenue growth, which is not surprising in an environment with weak labour markets, basically it’s been easier to make money by cutting costs than by selling more goods. There are good reasons to bet on stocks (where else can you put your cash right now?) and then there are less good reasons. A world where sales are growing which then feeds into the bottom line is always the ideal, unfortunately we haven’t really had this for a long time (Apple and a few others being the exception). I mention all this because the US employment data at the start of February was so impressive. Labour markets in the United States appear strong and continue to tighten, we are already close to levels that the Federal Reserve would define as full employment. Even if there wasn’t a natural limit to efficiency gains it should still make one wonder. Sales growth simply has to start picking up soon otherwise it will be difficult to justify a continuing rise in company valuations. It is also hard to justify new capital investment without revenue growth. Please note that these observations have been focussed exclusively on the United States, the one truly bright star in a very cloudy macro-economic sky.

Currencies broadly reflect these issues, with the US dollar pre-eminent, but as we’ve mentioned several times in recent weeks, what we are seeing at the moment is less about the dollar and more to do with the specific problems other currencies have, being reflected in weakness against the greenback. The euro, and other European currencies continue to dance to the tune of debt renegotiations and extraordinary central bank actions to deal with a stagnating economic environment. We are still only at the start of a new paradigm where negative interest rates are not just a textbook possibility, but a reality that several markets are now experiencing. We are all out on a limb here, it’s difficult to truly comprehend the implications to investment decisions that negative rates will have. We will all have to learn on the hoof! Surely there’ll be unintended consequences that no one has properly considered yet?

For the moment stability of a sort has returned to financial markets, gold prices have fallen back sharply from the panic highs of mid-January, EUR/USD trades within a corrective complex that could still see the pair trade up to the 1.15 – 16 zone before the bigger picture trend reasserts and the bear trend continues. We still maintain that parity is a real possibility at some point, later on this year, but there’s many a slip twixt cup and lip.

For now, dollar strength remains easier to discern in select emerging market currencies, and the recovery in oil prices is enough to give hope that broader based recoveries are possible. We don’t share the positive recovery view, and even though we could see further strengthening in oil prices, we see this as a more technical happenstance. Demand characteristics will be a more important determinant for when energy prices really do stabilise, negative interest rates are a clear sign that that is not a world we live in at the moment.

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Good morning

Finally some good news overnight. First out the blocks was the announcement of a cease-fire in the Russia-Ukraine conflict. The IMF also reached an agreement with Ukraine over a new 4-year assistance programme. Whilst this is indeed good news, let’s not forget how the last cease-fire ended up, under fire!!! We can only hope that this time it will be long lasting and normality will return to the region. This was followed by the news that Germany is prepared to relax its fierce opposition to the easing of the bailout demands faced by Greece. While no new deal is on the table, there are at least some olive branches being offered which if accepted by Syriza, could lead to an agreement on the terms of the austerity package. Previously the major stumbling block was Germany relaxing its demands. Angela Merkel said, “Europe always has been geared towards finding compromises. Compromises are agreed when the advantages outweigh the disadvantages. Germany is ready for this.” As we have said many times in this commentary, while Ms. Merkel has been the key cheerleader for austerity, she feared that any relaxation of the €240bn bailout’s terms would send a signal to other heavily indebted nations that they could divert from reforms. It was confirmed on Thursday that technical discussions had begun ahead of another meeting of EU finance ministers on Monday. Greece’s PM Tsipras expressed his hope that a “mutually acceptable” debt deal can be secured next week. He said: “The Greek delegation will take part in these meetings with crystal clear proposals and we will try and convince, not blackmail, our partners about our proposals. Our program will respect European rules …. we will keep balanced budget, respect the fiscal rules of the EU. We don’t want to go back to era of deficits.” All in all these are positive signs and the markets scooped it up taking the EURUSD above 1.1400 (1.1430 as I write this). Like I wrote recently, GREXIT is not an option and the mere thought sends shivers down the financial markets spine.

Interesting comments from Gov. Carney of the BOE yesterday. He actually intimated that if inflation continues to fall, they have the means to rectify this. What this all means in simple terms is they CAN (if they choose) CUT (yet I didn’t mistype) interest rates. After all looking at other western countries (Sweden, Swiss, EU) there is no reason why they can’t. Will they do it, I don’t think so. The reason is Oil prices remain low ($60p.b), food prices are falling and wage growth is trickling higher. All this is adding to the UK’s prospects for healthy GDP numbers (2.7% target). Gov. Carney emphasised the downside risks to near-term inflation and the MPC’s view that the risk of low spot inflation becomes embedded in lower inflation expectations, the Bank only pushed higher its GDP forecasts reflecting the positive effects of stabilising real wages and lower oil prices on economic activity. The upward move in short rate expectations that has seen the market move from pricing the first rate hike from Q4 16 to Q1 16 largely occurred after the US January Employment Report. However, the MPC, with the added complexity of a closely fought election campaign, may be grateful for the support that the oil price decline has provided in terms of easing rate tightening expectations. Governor Carney did little to disabuse the market of its current expectation of tightening in Q1 16 and intriguingly, raised the possibility of a cut in the Bank Rate should inflation surprise to the downside. With other European central banks easing via conventional and unconventional means, the “floor” in UK rates at 50bp is no longer in place. This leaves the front end possibly well-support over the next few months as the inflationary picture develops. The report gave GBP a boost sending the currency through the 1.5400 handle though it has eased off to 1.5385 as I write this. EURGBP was a clear winner, taking us to  LOW OF 0.7385 – 1.3540, though this has fallen back somewhat at the open to trade at 0.7430 – 1.3450 as I write this.

The Riksbank (Sweden) joined other small European economies by easing monetary policy further via negative rates and QE. In particular, the bank cut its policy rate to -0.1% (from 0.00%) and announced that it will soon buy government bonds for SEK10bn. EURSEK rallied more than 1% following the news.

Nigeria’s NGN remains on the back foot falling to a low of 207.10 before recovering back to 205.50….the market is still very nervous and liquidity is scarce as you can imagine.

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Good Morning

Continuing with Julius Caesar theme, it was no surprise yesterday that there was no agreement from Greece’s meeting of finance ministers. Neither side can even agree on what is up for negotiation. Germany had taken the calculated risk that Greece has more to lose than they have, so have chosen to hold tight. For their part, they know that giving Greece the negotiating room beyond the Troika will open up the doors to further anti-austerity movements in the EU (Spain, Portugal) and they fear they will be the ones paying the price. That also amounts to electoral suicide domestically. The market is taking the view that Greece is the one that is going to blink first (we hope). EURUSD is comfortably above the lows yesterday seen at 1.1280. Ultimately, the key difference between the two sides is that Greece does not want to commit to the policy conditionality specified under the existing program, while the European side is requesting the opposite. The European side is offering a technical extension of the existing program with the Greek side desiring maximum flexibility and the least amount of up-front commitments attached to completing the program review.
All eyes now focused on Wednesday’s bi-weekly ECB review of the ELA limits of Greek banks. In the event of failure, we would expect the ECB to become more explicit on the timing of when ELA funding would be withdrawn or capped. And that my friend is a disaster waiting to happen. Could we actually see GREXIT a reality. A giant tsunami that will have many casualties.

Overnight, the AUS is the main standout from overnight trading, having weakened back down to the 0.7650 level (recovered to 0.7675 as I write this) in the wake of the latest employment data. The unemployment rate jumped up to 6.4% (from 6.1%) with full time employment falling by 28k in January. The Aussie is now much closer to the levels prevailing in the wake of the rate cut seen earlier this month and the weaker tone in some way validates the RBA’s precautionary 0.25% easing.

Going into today’s quarterly Inflation Report, sterling has been relatively resilient above the 1.50 level on cable. The issue for the Bank will be convincing markets that the fall in headline inflation is temporary and the bigger picture still favours recovery and an eventual rate hike. As ParityFX has stated many times, the UK will FOLLOW the US in hiking rates and therefore we see that coming towards the end of Q3. EURGBP has fallen back slightly this morning from 0.7415 (1.3485) to 0.7460 (1.3404) ahead of the report by the Gov. of the BOE. We still think GBP will follow the USD’s lead and eventually BREAK through the key support level at 1.5000….I am afraid to say, exporters you NEED TO HEDGE you forward cash flow now and avoid any nasty shocks.

Nigeria, together with other EM currencies has seen the NGN fall out of bed with a proper bump. Falling through the key 200.00 level the currency  is currently trading around 204.00 levels. The recent announcement that the elections are going to be postponed by 6 weeks and the falling oil price has seen the NGN “taken to the cleaners”. The market has fallen out of love with the NGN and like the RUB, it is being thrown to the sharks. ParityFX has been advising her clients for month’s to hedge any USD needs as we saw the currency devaluing….and this has happened. Having said that you still have time to hedge and cover you FX forward requirements. As always ParityFX is here to lend a helping (and MUCH CHEAPER) hand.

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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The UK economy continues to deliver shaky numbers that point towards a softening in the robust growth we’ve seen in recent quarters. Yesterday’s year on year to December industrial production number was +0.5% versus +0.7% forecast, and much weaker than the 1.1% to November. Sterling posted a low after the numbers, but recovered into the days close. I am uncertain if the corrective wave is complete, before the bearish GBP/USD trend continues, but for now the level to watch is 1.5353. I would suggest that 1.1499 is the equivalent level for EUR/USD. Incidentally, we may be getting close to the limits of sterling’s outperformance over the euro in the short term, I’m monitoring the chart, and there seems to be the potential for some positive divergence there.

Apart from some bond auctions in Europe and the US today, and Brazilian retail sales, I don’t see much macro data to write home about. That’s not to say that there isn’t much on the macro front to concern us. We all know what the issues are, but it’s worth revisiting every now and then:

• Debt negotiations between Greece and its Eurozone partners – I hope you don’t have shares in Greek banks. I could show you the charts, but its early morning, way before the watershed. Children might be watching. Fear dominates the Greek markets in anticipation of another emergency meeting between the Greek finance minister and his Eurozone counterparts. The gap between the two parties is wide, and given the Eurozone side feels that Greece has more to lose (I’m not so sure about that!) it is entirely possible we see more of that classic Eurozone brinkmanship before any agreements are made. There really could be trouble ahead.
• Imminent QE programme from the ECB – bond purchases will commence in March (sans Greece), and all across Europe a new monetary experiment has commenced with euro denominated Nestle corporate bonds yielding in negative territory. The zero bound was always considered a barrier, but perhaps the Swiss and the Danes will teach us all something. Lessons as memorable as those of the Weimar republic’s dance with hyper-inflation no doubt! Core Eurozone equity markets continue to trade well, even if they appear to be in a flag pattern at the moment, but further highs look likely.
• Oil prices recovering as rig counts fall in the United States – I’ve mentioned this a few times, but it appears the damage done by lower oil prices is having an impact on the shale oil industry. The rig count (number of rigs drilling oil in the U.S) continues to decline, even though production remains at the highs. This tells me that a lot of productive wells are likely to be depleted faster than might be expected. We might see the evil genius of the OPEC (Saudi?) decision to maintain production levels sooner than we expect. I would be bullish oil prices from here if demand wasn’t as much of a concern as supply, as things stand I am increasing confident that we have probably seen the lows, or at the very least the final lows are not that far from what was recorded in mid-January. We are currently trading 25% above the lows of last month, but we are miles away from levels that would be of comfort to the likes of Russia, Venezuela and Nigeria, it’s important to remember that.
• Impact of last week’s stunning employment report in the United States – the Federal Reserve has lots to ponder with not just employment growth accelerating, but hourly earnings numbers far stronger than forecast. That, as I’ve suggested in the past, is likely to be a key point of focus for U.S central bank officials because it is the most likely trigger to push inflation rates higher in the U.S. Let’s see what happens with oil prices from here. If we’ve based, then no one will talk about the deflationary (or disinflationary?) impact of energy prices in the near future!

What has been the case at local Nigerian bureau de changes (or Malams, if truth be told!), is finally feeding through to the far more competitive and transparent inter-bank markets as USD/NGN has finally traded above 200. Worse still the forward markets tell us that the naira will be trading above NGN 260 in a year’s time!! If even half of this comes true times will be very tough in Nigeria over the coming year. Presiding over a recovery process regardless of who wins the now delayed elections will be a daunting task.

I’ll leave you with this observation… the S&P 500 trades at the top of the range that’s been in force since the beginning of the year. Do we break higher? Or is the range important? We shall see…

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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Good morning

William Shakespeare in his novel Julius Caesar writes: “Men at some time are masters of their fates. The fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings.” And most notably “Beware the ides of March.”  Greece’s PM continues to make waves, declaring that he would not request an extension to the government’s bailout program, stating that it had failed. The existing bailout is due to expire on Feb. 28 and, without an extension, could result in Greece’s exit from the EU. So far it’s too early to say whether Greece is just playing a calculated game of chess with EU Finance Leaders (meeting currently in Turkey), or whether it is willing to become a financial island from the rest of Europe. In other words is GREXIT gathering momentum and can the impossible happen? I have said over and over that GREXIT is not an option. That everything that can be done to maintain the EU, must be done. The most heartbreaking thing is now that the ECB has thrown the proverbial book at EU growth, the Greeks want to start a fight. Do they honestly think they can go it alone? “No man is an Island”, and as I said yesterday Mr. Tsipras is trying to make good on his campaign promise of eliminating the current austerity plan, by proposing an elimination of a portion of the debt-reduction measures the country had agreed to as a condition of international aid. However, Germany has already indicated she has no intention of easing up on the requirements of the bailout terms. Chess is in a game of patience, where the champion waits before going in for the kill. Mr Tsipras if you think for one moment you are Magnus Carlsen then you are sadly mistaken. The EU will not cave in, the Germans (especially) will not cave in, and if Greece wants to go it alone then so be it. We all know who the ultimate loser will be in this game of chess. Mr Tsipras needs to lighten up on his rhetoric (keep his party happy) but understand that for Greece’s sake, it is better to be part of the (EU) community rather than a pariah state.

Chinese CPI dropped below 1% for the first time in 5 years (0.80%), adding to China’s deflationary woes, subdued money growth, property bubble and growth worries. No doubt the world’s second largest economy is starting to feel the pinch. And there we were all thinking that we were past and over the financial crisis that began in 2007 (not 2008 as most commentators would argue). It is now plain to see that the world’s largest economy, the mighty USA, took the right decisions early on to get their economy cooking. That’s why the UK MUST VOTE Conservatives to continue on the present road to growth and recovery. I know I have said this months ago, and recently by industry giants, a LABOUR Government will spell DISASTER FOR THE UK ECONOMY and see the GBP collapse, not to mention the flight of aforementioned industry giants to fairer pastures. You might not support the Conservatives and the BOE is independent, but the changes and the spending mess Labour will bring with it makes GREXIT another atomic bomb prospect. Trust me when I say this, Labour will kill off the UK’s amazing growth of the past 2 years.

Nigeria postpones elections due to terrorist threats. Amazing story really. The giants of Africa, the largest economy in Africa. Suffice to say USDNGN is getting truly whip lashed rising up to 196.30 lows. Locals are changing NGN for USD OVER 200 and even that is “cheap”. More must be done to eradicate the Boko threat once and for all. Just like South Africa in the mid 80’s and the war with MPLA/SWAPO, the SADF piled on the pressure to stamp out this threat. The point I am trying to make is Nigeria is being hammered by lower oil prices and Boko stretching the Govt. and making governing quite testing. I know it is easier said than done, but something needs to change and order needs to be restored. Simple.

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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Good morning

The US economy takes it in her stride powering ahead. NFP numbers on Friday surprised everyone (expected 240k average) with a print of +257k. Unemployment might have edged up 0.10% to 5.70% but it was the monthly job creations (NFP) that we were all looking at for direction. Suffice to say the EURUSD fell like a stone from circa 1.1440 to 1.1320, GBPUSD 1.5340 to 1.5220. This is a USD move, pure and simple. Additionally average hourly earnings rose 2.20% y/y in January which is something the FED like to see…job creation and wage growth. The revisions were also strong with payrolls rising 329k in December and 423k in November taking the past 3 month average to 336k which is the strongest growth since November 1997. All in all the strength of the US economy continues to shone through and as we have suggested in previous blogs, we expect the FED to start raising rates as early as July 2015. Having said that if the USD does continue to rally towards PARITY this could force the FED’s hand forcing them to hold back a couple months and see how the market deals with strength of the USD. The FED have a magic wand right now and they are using it as and when they need.

The effects of the strong US QE over the years is now clear for everyone to see. It is no wonder that BOE Governor Mark Carney hailed the ECB’s latest push to revive the EU economy and said global financial markets are now more resilient against additional shocks. “There are many reasons why the ECB’s actions are important, one of them is it shows the ECB has the full tool kit to support the underlying economy as necessary…the ECB is taking bold action,” Mr. Carney said at a meeting of the G20 Finance Ministers and Central Bank Governors in Istanbul.

The ECB have played their trump card, what about the BOE and the UK economy? Well the BOE is observing a turn in wage growth in the U.K. which is required for a sustainable economic recovery. The U.K. economy is returning to relatively robust growth while Europe struggles against deflationary pressure because the BOE moved quickly to recapitalize the banking system after the 2008 crisis and stuck to its inflation-targeting remit. The UK’s flexible economy also helped job creation as labour participation increased. Mr Carney said “Reform recommendations after the 2008 crisis by the Basel Committee on Banking Supervision and the FSB have already started to make a difference”.  Mr. Carney warned of “reform fatigue” and said countries need to strike coalitions to enact the “toughest macro reforms”, adding that the G-20 should hold its members to account on pushing through measures that will help integrate and strengthen global financial stability.  Mr Carney was obviously having a “dig” at Greece hoping that they will toe the line with austerity rather than try and fight it. While GREXIT would and could create a disaster in the financial that we have never seen, it is our sincerest hope that it never comes to this.

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Good morning

Quiet trading conditions ahead of NFP (Non-Farm Payrolls) at 1.30pm (Ldn) today. Market expects in the region of 230-240k jobs being created vs 252k last month. As we mentioned in the blog a few days ago we do not expect any “fireworks” or exceptional number given the severe weather conditions in the US in January. Unemployment though could fall to 5.50% from 5.60%, but it is really the NFP number that everyone is interested in. EURUSD has been trading sideways for the past 24 hours – just look at the table and you can see the narrow high low margin. As I wrote above, we are all waiting for NFP before the next move ensues.

Greece: when will this beautiful country sort out its mess. Just a few days ago I wrote that the EUR rallied after a softer rhetoric from Greek Fin Min. It was then surprising to hear that The German Finance Minister and his Greek counterpart who met yesterday in Berlin,  failed to reach an agreement on ending or modifying Greek austerity measures. Wolfgang Schaeuble noted that they had “agreed to disagree”. But in Athens, the Greek Prime Minister reiterated that “austerity is not a rule of the European Union.” This story is going to be dragged through the mud for some time. There will be comments from both camps, both trying to out-muscle the other and gain superiority. What the Greeks must accept, is Germany “runs” the EU and is generally seen by most as the number member. The Germans are not looking to wag the finger at the Greeks adding, “you will do as we say, or else”. In fact they are trying to find a happy medium where all EU members will be happy with the outcome. Like I said above, this is going to drag on for some time!

Meanwhile, the ECB continues its “carrot and stick” approach toward Greece. The ECB will allow Greek banks up to €59.5bn in emergency cash. Under the measure, the Greek central bank is allowed to provide liquidity to these banks at its own risk. This follows Wednesday’s ECB decision to end a waiver on the quality of Greek debt it would accept as collateral. It is pretty obvious everyone is trying to woo the Greeks into accepting that austerity stays and that Syriza must continue the good work the previous party had begun. The strange thing is, the hard work was paying off. I really hope that is not tossed aside. It will set things back and more importantly hurt the Greek economy which is starving and struggling to stay afloat.

Nigeria’s NGN fell to a new record low on Friday despite rebounding crude prices, while the ZAR traded near a two-month high with the dollar showing weakness after seven straight months of gains. Nigerian inflation rate has picked up to 8% as per December data while GDP growth has eased to 6.23% from a year earlier in the Q3. November CPI rate was 7.9% and the Q2 GDP growth was 6.54%. The Nigerian central bank left its key rate unchanged at 13% at the 20 January meeting. It had hiked the rate 100 basis points in the November review in order to stabilise the economy and currency amid the sharp slide in crude prices. Nigeria is Africa’s largest oil producer and gets 70% of its revenues from oil exports. The naira is under pressure due to the slide in oil prices since June last year. While the slide in the NGN has gone some way to help, business has suffered from the fall (importers). Exporters continue to shine as the value of the NGN has fallen from 164 (to the USD) to 193.25 presently. As things stand, the overall view for the economy remains tough with global markets continuing to impact the local economy.

We have the Bank of England rate decision later on today and no one should expect any change from the current 0.50% base rate. Not after the two hawks retreated last time around and opted to vote for no change. Realistically this is not going to be a big event in the scheme of things, only a surprise would do that, and as I said that would be a very unlikely outcome.

Yesterday the People’s Bank of China (PBC), the central bank of China, loosened monetary policy by cutting the required reserve ratio in an effort to counter the impact of capital outflows and to encourage banks to increase lending to the domestic economy. This was a positive for Asian equity markets. This is yet another major central bank easing policy at the start of 2015. So far, I believe we’ve seen Switzerland, Eurozone, Denmark, Australia, Canada and Russia easing. I’m sure I’ve missed a few, but you get the point. As I’ve said before, if the Federal Reserve does raise rates later on in the year, it will be for symbolic reasons only. US dollar strength will actually do the heavy lifting in terms of tightening domestic monetary conditions in the United States anyway.

Meanwhile, in Europe, the ECB has stepped up the pressure on the new Greek government by tightening the access Greek banks have to cheap liquidity. This is a clear signal to the new government that attempts by Athens to secure funding in the period between the exit of the bailout programme and any new agreement will not be easy. One would hope that we don’t see the brinkmanship that has preceded Eurozone crisis resolution in the past, but the evidence is mounting that this is exactly what we’re going to get again.

Markets are currently in complex corrective mode at the moment, with no clear signs of trend. We still maintain that when this phenomenon concludes, the trends which were previously in force will come to the fore again. So we still continue to anticipate further dollar strength and euro weakness. Please note that we have non-farm payrolls in the United States tomorrow. The forecast is for an increase of 234,000 jobs.

Meanwhile the damage from the collapse in energy prices has unsurprisingly caused default risk in the US oil & gas sector to perk up. What is transparent for company’s finances applies to exposed countries as well. You have been warned…

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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Good morning

In our daily blog yesterday i wrote the following “Greece remains all over the news. Softer rhetoric from Greek authorities on a likely renegotiation of their aid package helped stabilise the EUR. YESTERDAY MORNING I wrote: “I think to a larger extent CB’s globally have used all their monetary policy bullets and are now looking at market fundamentals (lower oil prices, QE, negative policy rates, buying other assets, keeping rates stable for longer ) to raise GDP levels. No doubt a corrective pull back above 1.14 (1.1425 target) is probably a very healthy move and one which I would like very much to see. This would help wash out some of the “day traders” and allow the market makers to re-stock the USD hampers ahead of the next leg lower. There is nothing stopping the move from picking up pace once the pendulum swings back in favour of the USD.” WE GOT OUR WISH and our target was reached and crossed. EURUSD trading around 1.1445 as I write this have reached a respectable 1.1485 overnight on the back of softer rhetoric from the Greeks. We have not quite reached an agreement but the fact that they are talking the same language means some kind of agreement could essentially be reached. The EU MUST make sure they do not give in to Syriza’s demands, but rather work with them to find an amicable solution. As I have said many times, “GREXIT” IS NOT AN OPTION!!

Stock markets had a wonderful day yesterday amid a recovery in the oil price. While the price still remains on a $50 handle ($57.35), oil companies continue to feel the pinch (BP profits down 20% and ex Chairman Lord Brown said while there is still ample stock of oil in the North Sea, the cost of getting it out the ground is rather expensive and unless the companies in the region collaborate, they will go out of business). In every market there will be winners and losers. Oil companies have fleeced us for way to long. Finally the consumer is smiling.

Some respected analysts recently have been writing more and more about the EURDKK peg.  Denmark’s Nationalbank (DNB) is highly unlikely to abandon or revalue the DKK’s peg to the EUR under ERM II. Since the Swiss (SNB) abandoned its EURCHF floor, speculation has mounted that the DNB will need to do the same under pressure from foreign investors seeking Danish government bonds as close alternatives to low-yielding and increasingly scarce high-quality EUR area government paper. However, the situation in Denmark is quite different to that of Switzerland and the DNB faces supportive economic fundamentals. Suffice to say the DKK is not a safe haven currency.

Calendar wise we have UK Services PMI for January being published at 9.30am. Previous was 55.80 and expected 56.30. GBPUSD trading around 1.5150 as I write this having recovered from sub 1.50 last week. This is a USD sell off rather than a GBP recovery. A good PMI number should give the GBP another lift ahead of NFP on Friday which is always a BIG event. Recent data out the states has been muted so I am not expecting fireworks on Friday. I think the number will be a beauty, but not a giant killer.

Good morning

The big news overnight was the cut in interest rates in Australia by 0.25% from 2.50% to 2.25%. One of the few “Western Economies” that still has some powder in its arsenal, the RBA cited the persistently overvalued currency and foreshadowed a downgrade to its economic outlook in Friday’s Statement on Monetary Policy. Having kept rates steady for 1.5 years including a year of neutral forward guidance of a “period of stability in interest rates” the RBA has now embarked on a potentially a NEW easing cycle to stimulate the economy. With a slowdown in China (Australia’s biggest trading partner) well on course, the RBA felt they had no other option other than to start lowering rates. The AUDUSD fell from 0.7825 to 0.7625 after the news trading just above the lows at 0.7640 as I write this. Suffice to say the RBA (like the ECB) WANT A WEAK AUD (EUR) to make exports more attractive and in turn help steady the ship and put it on course to a strong recovery. Market analysts believe another cut could come as early as May, and then wait and see how that has worked into the economy. No doubt the lower oil prices has been seen as a plus for both growth and domestic consumer spending but a negative for inflation (welcome to the world worry about inflation club Australia).

Slightly weaker economic data out the USA yesterday has slowed the USD rally. US manufacturing ISM fell more than expected, to 53.5 from 55.1, while new orders fell from 57.8 to 52.9 in January, the lowest level since January 2014. US construction spending in December was below expectation as well, rising 0.40%. US personal income and spending also showed some slowing into year-end. Wage and salary growth was soft, rising 0.1%, while core PCE was flat month on month. Overall this does NOT change our predictions or thoughts vis-a-vis the USD. PARITY IS COMING, it is just a case of being patient. Non-Farm Payrolls out Friday should help matters. No doubt a corrective pull back above 1.14 (1.1425 target) is probably a very healthy move and one which I would like very much to see. This would help wash out some of the “day traders” and allow the market makers to re-stock the USD hampers ahead of the next leg lower. There is nothing stopping the move from picking up pace once the pendulum swings back in favour of the USD.

Greece remains all over the news. Softer rhetoric from Greek authorities on a likely renegotiation of their aid package helped stabilise the EUR. YESTERDAY MORNING I wrote: “I think to a larger extent CB’s globally have used all their monetary policy bullets and are now looking at market fundamentals (lower oil prices, QE, negative policy rates, buying other assets, keeping rates stable for longer ) to raise GDP levels”. No doubt the ECB READ PARITYFX’s blog because LAST NIGHT ECB’s policy maker Christian Noyer (who sits on the ECB’s governing council and is the governor of the Bank of France) said Greece can quickly reduce its public debt ratio by boosting economic growth, thus casting aside the idea of writing off part of the country’s debt mountain. Greece has the capacity to grow quickly, partly because it has an underutilized workforce, Mr. Noyer said. The country also pays little to service its debt—which stands at around 175% of annual economic output–because European lenders have granted low interest rates and deferred repayment deadlines, said Mr. Noyer. “Greece has the capacity to bring down the debt ratio quite quickly,” Mr. Noyer said in an interview with French radio station France Info. Noyer said that some adjustments are perhaps possible, but the charges on the debt are already very low, continuing that Greece’s recovery program could doubtless be improved to ensure stronger growth and better tax collection. “The new government could have better ideas on a certain number of points,” Mr. Noyer said.  All in all Greece must accept they are PART of the EU, they have debt’s that need servicing, and most importantly   “Greece needs clean up their own backyard before they try to clean their neighbours”. I find it so FRUSTRATING that people want hand-outs (for free) but when it comes to paying it back (or even a portion of it) they start throwing stones and having a hissy fit. Sorry Greeks (and I have many friends there), but like the rest of us you cannot retire on a full pension at 57 years old and go live in Mykonos.

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